UC-NRLF 


LIBRARY 

OF  THE 

University  of  California, 


GIFT  OK 


Class 


\ 


Fire  Insurance: 


Its  importance; 

Its  relation  to  the  community; 

It  is  not  a  trust; 

Why  an  individual  cannot  insure  himself; 

Why  the  State  cannot  insure  its  citizens ; 

Why  valued    policy    laws   are    injurious  to 
the  community ; 

Why  adequate  rates  are  in  the  interest  of 
the  people; 

Why  associations   of   insurance  companies 

reducing    the    expense    of  inspecting 

buildings  and  rating  them  are  in  the 
interest  of  the  people; 

Why    corporations    are    beneficial    to    the 
people. 


Fire  Insurance: 

Its  Importance  ; 

Its  relation  to  the  community  ; 

It  is  not  a  trust  ; 

Why  an  individual  cannot  insure  himself; 

Why  the  State  cannot  insure  its  citizens  ; 

Why  valued   policy  laws  are  injurious  to 

the  community  ; 
Why  adequate  rates  are  in  the  interest 

OF  the  people. 
Why  associations  of  insurance  companies 

reducing   the    expense    of    inspecting 

buildings  and  rating  them  are  in  the 

interest  of  the  people  ; 
Why  corporations  are  beneficial  to   the 

people. 


Press  of  Styles  &  Cash,  New  York. 


TABLE  OF  COKTEKTS. 


A. 

Adequate  Rates  in  Interest  of  Public,  13,  15,  16,  17,  29. 

Agents,  commissions,  &c. ,  ig.  * 

Appraisers  or  Arbitrators,  policies  provide  for,  24. 

C. 

Chicago  Fire,  16. 

Cities,  business  of  a  fire  insurance  company  should  not  be    confined  to 

single,  8. 
Capital,  not  sufficient  to  pay  losses,  13,  29. 

Competition  in  Fire  Insurance,  14;  in  mercantile  business,  14. 
Combinations  of  Insurance  Co. 'sin  interest  of  people,  29. 
Conflagrations,  large,  16. 

Corporations  beneficial,  poor  man's  opportunity,   17, 
Co-insurance,  30. 
Co-operation  of  Insurance  Co.'s  in  interest  of  public,  15,  29. 

E. 
Experience  on  which  rates  are  based  must  be  broad,  8. 
Expense  of  Insurance  business,  18;  of  other  businesses,  18. 
"        Associations  of  Co.'s  to  lessen,  30. 

F. 
Fire  Waste  of  Country,  annual,  16. 
French  Jurists,  tribute  to  Insurance,  2% 

I. 
Inspection  of  Buildings  in  interest  of  public,  15,  30. 
Importance  of  Fire  Insurance,  27. 
Individual,  why  cannot  insure  himself,  9. 
Indemnity,  policy  of  insurance  is  a  contract  of,  7,  22. 
Insurance  by  State  or  Government,  11,  26. 
"         importance  of,  27. 

L. 

Loss,  percentage  of,  21. 

Loans,  Real  Estate,.  Mortgage,  27. 

Large,  sweeping  fires,  Chicago,  Boston,  &c  ,  16. 


11269? 


4  TABLE   OF   CONTENTS. 

M. 
Monopoly,  not  possible  in  Fire  Insurance,  12. 

Matthews,  Hon.  W.  S.,  on  Valued  Policy  Laws,  25  ;  on  taxation,  21. 
Mortgage  Loans  of  U.  S.,  27. 

N. 
Neighbor,  any  claimant  can  have  neighbor  for  his  arbitrator,  24. 

P. 

Premium,  7. 

Policy,  7. 

Profits  of  Insurance  business,  12. 

R. 
Rate,  7  ;  adequate  ra^tes  in  interest  of  public,  13,  15,  16,  17,  29. 
Rates  should  discriminate  as  to  faults  of  construction  and  faults  of 
management,  &c.,  15. 

S. 
State,  why  cannot  insure  its  citizens,  11. 

Statements  required  of  Insurance  Co. 's  as  to  profits,  expenses,  &c.,  12, 
State  supervision,  15. 
Schedule  Rating,  15,  16. 
Sumner,  Chas..  on  taxing  insurance,  20. 
Sweeping  conflagrations,  16. 

T. 

Trust,  Fire  Insurance  is  not  a,  7,  32. 
Taxes,  19,  20. 

V. 
Valued  Policy  Laws,  21;  bear  hardest  on  poor,  23. 

W. 

Wager,  7. 

Waste,  annual  fire,  16. 

Whiskey,  insurance  on,  8. 

Why  cannot  an  individual  insure  himself,  9. 

Why  cannot  State  insure  its  citizens,  11. 


EXPLAIS^ATORY. 

At  the  September,  1899,  meeting  of  the  Executive  Com- 
mittee of  the  National  Board  of  Fire  Underwriters,  a  com- 
mittee was  appointed  to  prepare  an  explanation  of  the  principles 
and  methods  of  the  business  of  fire  insurance  and  its  im- 
portance and  relation  to  the  community  at  large,  in  the  hope 
and  belief  that  a  better  understanding  of  the  subject  would 
relieve  the  business  of  at  least  some  of  the  opposition  with 
which  it  has  to  contend  on  the  part  of  legislatures  and  property- 
owners.  The  following  pages  have  been  prepared  after  care- 
ful canvass  among  experienced  underwriters  for  suggestions 
and  criticism.  The  Committee  have  endeavored  to  present  a 
fully  prepared  argument  and  explanation  of  the  business  for 
the  use  of  underwriters  called  upon  at  short  notice  to  explain 
to  a  legislature  the  proper  method  of  taxing  insurance  com- 
panies; the  objections  to  valued  policy  laws  and  laws  prohibit- 
ing the  co-operation  of  companies  for  improving  the  business; 
and  the  reduction  of  its  losses  and  expenses;  which  laudable 
ends  can  only  be  secured  by  co-operation.  They  have  endeav- 
ored to  explain  that  co-operation,  which  would  reduce  the 
expense  of  inspecting  buildings  and  supervising  them,  is 
directly  in  the  interest  of  property-owners  and  of  the  country 
at  large,  whose  enormous  fire  waste,  year  by  year,  can  only  be 
reduced  by  calling  the  attention  of  property- owners  to  faults 
of  management,  improper  construction,  etc.,  etc.,  which  result 
in  the  destruction  of  their  buildings  and  sometimes  in  the 
destruction  of  entire  cities.  These  inspections  can  be  per- 
formed for  all  of  the  companies  insuring  a  property  as  cheaply 
as  for  any  one  of  them. 

ISTiiw  YoEK,  Oct.  1,  1899. 


Digitized  by  the  Internet  Arcinive 

in  2008  with  funding  from 

IVIicrosoft  Corporation 


http://www.archive.org/details/fireinsuranceitsOOnatirich 


THE  EELATIO^  OF  FIKE  INSUKAJSTCE  TO  THE 
COMMUJS^ITY. 

IS  FIKE  mSUKANCE  A  TRUST? 

As  a  proper  understanding  of  this  question  involves  more  or 
less  technical  or  expert  knowledge,  possessed  only  by  those 
engaged  in  the  business,  it  may  be  well,  for  the  benefit  of 
those  of  other  callings,  briefly  to  explain  those  fundamental 
principles  of  underwriting  which  are  indispensable  to  a  correct 
conclusion  from  a  community  standpoint. 

It  is  perhaps  unnecessary  to  explain  that  the  "Premium"  is  the 
price  paid  an  insurance  company  for  assuming  the  risk  of  fire ; 
that  the  "Rate"  is  the  charge  per  $100  of  insurance,fixed  accord- 
ing to  the  construction  of  the  building,  its  occupation,  environ- 
ment and  facilities,  public  and  private,  for  extinguishing  fires  ; 
and  that  the  *'  Policy"  is  the  contract,  a  unilateral  one,  written 
and  issued  by  the  insurance  company  to  the  property-owner. 

It  is  not  generally  understood  that  a  policy  of  insurance  is 
not  an  agreement  to  pay  a  stipulated  sum  by  way  of  liquidated 
damages  in  the  event  of  the  destruction  by  fire  of  the  subject 
insured,whichwouldbea  "wager"  and  contrary  to  public  policy, 
but  is  simply  an  undertaking  on  the  part  of  the  insurance  com- 
pany to  indemnify  the  owner  to  the  extent  of  his  loss  in  actual 
value  damaged  or  destroyed  ;  the  amount  of  insurance  named 
in  the  policy  and  paid  for  at  the  rate  of, premium  being  a  limit 
of  claim  and  not  a  measure  of  it. 

The  rate  of  premium  or  price  charged  by  the  company  is  not 
based  upon  the  expectation  of  burning  of  a  particular  risk 
insured,  but  upon  the  number  of  risks  of  like  kind  which 
would  be  burned  or  damaged  out  of  say  a  thousand  in  any  single 
year.  At  a  rate  of  one  per  cent.,  for  illustration,  a  thousand 
risks,  each  insured  for  $1,000,  would  yield  $10,000  in  premium. 
If  ten  risks  out  of  the  thousand  should  burn  in  a  year  the 
entire  amount  of  premium  would  be  required  to  pay  the  loss. 
It  is  evident  that  a  smaller  number  than  ten  must  burn,  or  a 
higher  rate  than  one  per  cent,  must  be  obtained,  to  provide  for 
expenses  as  well  as  losses. 


8  THE   RELATION   OF   FIRE   INSURANCE 

The  proper  rates  of  premium  for  the  various  kinds  of  property 
— dwellings,  churches,  schools,  stores  and  manufactories — are 
based,  therefore,upon  the  observed  number  of  risks  and  amount 
of  loss  in  each  class  which  burn  out  of  a  thousand  of  like  kind  in  a 
single  year.  If  the  business  of  fire  insurance  is  conducted  on  pro- 
per lines  the  element  of  luck  or  chance  does  not  enter  into  it. 
While  nothing  could  be  more  uncertain  than  the  probabilities 
of  escape  from  loss  by  a  single  risk,  nothing  can  be  more  certain 
than  that  the  average  loss  in  thousands  of  risks  of  the  same 
hazard,  environment  and  conditions  will  be  the  same  year  by 
year  ;  but  to  ascertain  this  average  percentage  of  loss  a  com- 
parison of  the  experience  of  all,  or  nearly  all,  of  the  companies 
engaged  in  the  business  is  necessary,  certainly  in  the  case  of 
most  hazards,  for  the  obvious  reason  that  no  one  company 
would  have  enongli  of  most  classes  on  its  books,  outside  of 
euch  large  classes  as  dwelling  houses,  farm  buildings,  etc. — 
especially  in  single  States — to  indicate  the  expectation  of  what 
might  be  termed  the  fire  mortality,  or  the  loss  on  any  one  class. 

This  consideration  indicates  the  mistake  of  confining  the 
business  of  an  insurance  company  to  a  single  city  or  limited 
territory,  as  it  would  deprive  the  company  of  a  sufficient  average, 
and  any  legislation,  therefore,  prohibiting  the  conference  of  com- 
panies for  comparing  their  experience  in  other  States,  in  order  to 
ascertain  an  adequate  rate,  would  be  subversive  of  the  principles 
of  insurance.  It  might  happen  that  a  single  company  in  a  single 
State  or,  for  that  matter,  a  single  company  throughout  the 
United  States,  would  show  a  loss  on  a  certain  class  of  hazards, 
while  the  experience  of  all  companies  put  together  would  show 
a  fair  profit  at  the  rate  obtained.  The  co-operation  of  insur- 
ance companies  to  ascertain  correct  rates  is,  therefore,  necessary. 

Take  the  risk  of  whiskey  in  brick  warehouses,  for  example. 
A  large  company  having  an  exceptionally  broad  general  expe- 
rience, incurred  losses  on  this  particular  class  during  a  five-year 
period  in  the  two  States  of  Kentucky  and  Tennessee  in  excess  of 
the  premiums  taken.  Such  an  experience  would  seem  to  indicate 
that  the  rate  obtained  of  90  cents  per  $100  was  too  low,  whereas 
the  experience  of  all  the  companies  doing  business  in  the  two 
States  named  proved  that  it  was  sufficiently  high,  and  the  rate 


TO   THE    COMMrNITY.  9 

was  not  raised.  This  same  company  during  the  same  period 
in  another  section  of  the  country — the  Middle  States — lost 
nothing  on  the  same  class ;  an.  experience  which,  taken  alone, 
would  seem  to  indicate  that  the  rate  obtained  was  for  that 
locality  too  high,  which  was  not  a  fact,  however,  for  the 
experience  of  all  the  companies  doing  business  in  the  territory 
showed  the  rate  had  been  properly  fixed  and  that  the  experi- 
ence of  this  single  company  was  simply  exceptionally  unfor- 
timate  in  the  one  territory  and  exceptionally  profitable  in  the 
other.  All  of  which  clearly  indicates  how  broad  must  be  the 
experience  on  which  rating  tables  are  based,  not  merely  for 
the  protection  of  the  insurance  companies  themselves,  but  for 
the  protection  of  the  public ;  and  how  unwise  would  be  legisla- 
tion prohibiting  the  conference  of  companies  for  comparing 
their  experience  to  ascertain  and  secure  equitable  rates.  Insur- 
ance companies  should  not  confine  their  operations  to  single 
cities,  not  alone  because  their  experience  tables  will  not  indicate 
proper  rates  of  premium,  but  because  in  order  to  get  sufficient 
income  they  would  be  tempted  to  assume  larger  liabilities  at 
the  risk  of  fire  than  they  could  discharge  in  case  of  sweeping 
conflagrations  like  those  of  Boston  and  Chicago,  by  which  nearly 
one  hundred  companies  failed.  The  local  companies  of  those 
two  cities  did  not  pay  a  sum  equal  to  simple  interest  for  a 
single  year  on  the  amount  of  their  claims,  and  their  loss  claim- 
ants had  to  wait  a  longer  time  for  this  small  proportion  of  their 
money.  '  / 

"Why  Cannot  an  Individual  Insure  Himself  or  Carry  His 

Own  Risk? 
The  argument  so  frequently  made  by  some  property-owneri 
that  they  have  paid  insurance  for  a  long  term  of  years  without 
collecting  a  single  loss  and  should,  therefore,  have  a  lower  rate, 
is  based  upon  ignorance  of  the  principles  of  fire  insurance ;  their 
contention  overlooks  the  fact  that  at  a  rate  of  1  per  cent,  it 
would  take  nearly  forty-one  years  compounding  the  interest  at 
4:  per  cent.,  for  a  sum  of  money  equal  to  the  premium  paid  at 
the  beginning  of  each  year  to  equal  the  amount  insured  and 
therefore,  enough  to  pay  a  total  loss ;  and  this   without  any 


10  THE   RELATION    OF    FIRE    INSURANCE 

allowance  for  the  expense  of  conducting  the  business.  Any- 
one can  verify  this  computation  for  himself.  One  dollar 
collected  and  invested  at  the  beginning  of  each  year,  the 
interest  being  compounded  at  4  per  cent.,  would  amount 
to  $98.82  at  the  end  of  forty  years.  Four  per  cent.,  it  is 
unnecessary  to  add,  is  a  larger  return  of  interest  than  insur- 
ance companies  receive  under  existing  and  proper  legislative 
limitation  as  to  investments  in  safe  securities. 

The  most  reckless  gambler  would  not  give  such  odds  as  one 
hundred  to  one  against  the  happening  of  a  single  fire  within 
a  period  of  forty  years,  knowing  the  hundreds  of  ways  in 
which  a  fire  could  occur;  and  the  property-owner  who  carries 
his  own  risk  is,  therefore,  taking  a  chance  of  losing  his  all 
upon  odds  which  a  professional  gambler  would  ridicule.  \In 
fact,  the  only  individual  who  can  afford  to  go  without  insur- 
ance and  take  the  risk  of  the  burning  of  his  own  property  is 
one — if  there  be  one — who  has  hundreds  of  different  pieces  of 
property,  all  of  the  same  average  value  and  so  separated  that 
no  two  could  be  destroyed  by  the  happening  of  a  single  fire.  If 
he  is  not  so  situated,  fire  insurance  is  necessary  for  his  pro- 
tection. His  commercial  credit  will  be  found  to  depend  upon 
it ;  no  one  can,  afford  to  sell  him  goods  on  time  or  lend  him 
money  if  he  is  not  insured,  for  his  ability  to  pay  would  be 
destroyed  by  a  fire  and  his  creditors  would  find  that  they  had 
practically  been  insuring  him  themselves,  without  the  compen- 
sation that  a  prudent  insurance  company,  engaged  in  the 
business  of  taking  risks,  would  have  charged.  The  cost  of 
insuring  a  frame  building  in  a  frame  neighborhood  in  localities 
beyond  the  protection  of  fire  departments  might  be  5  per  cent, 
or  more;  and  the  merchant  who  sells  goods  to  a  customer 
who  does  not  insure  would  practically  be  insuring  him  for 
nothing  at  a  cost  equal  to  or  more  than  the  profit  on  his  sales. 

It  is  this  ignorance  of  the  danger  of  fire,  due  to  the  limited 
experience  of  a  single  risk,  that  leads  to  mistaken  views 
of  Insurance,  which  involves  for  its  successfnl  conduct  as 
a  business  sufficient  knowledge  of  all  others  to  estimate 
properly  the  fire  hazards  of  their  methods.  The  owner  of  a 
flour   mill   may   never  have   suffered   from   fire ;  he   would 


TO    THE    COMMUNITY.  11 

necessarily  be  ignorant  as  to  the  causes  of  fires  which  have 
occurred  in  other  mills  than  his  own ;  but  the  underwriter, 
who  has  had  to  pay  for  losses  in  thousands  of  properties,  is  not 
and  cannot  afford  to  be  ignorant.  It  is  best  for  the  individual 
to  entrust  this  branch  of  his  worldly  affairs  to  those  who 
understand  it,  for  the  same  reason  that  he  entrusts  the 
erection  of  his  building  to  the  mason,  carpenter  and  architect. 

Cannot  the  State  Safely  Conduct  the  Business  of  Insur- 
ance FOR  ITS  Citizens? 

Theoretically,  yes ;  but  practically  nothing  would  be  gained, 
I4ie  chances  being  largely  in  favor  of  a  higher  cost  to  citizens 
and  poorer  management  than  would  result  from  the  conduct 
of  the  business  by  men  engaged  in  it  for  a  livelihood.  The 
State  would  need  the  same  expert  and  clerical  labor  as 
an  insurance  company.  It  would  require  inspectors,  adjusters, 
book-keepers,  and  men  qualified  for  the  various  branches 
of  the  business  to  the  same  extent  that  insurance  companies 
would,  but  with  this  difference,  that  they  would  too  often 
be  appointed  for  political  reasons,  rather  than  because  of  per- 
sonal qualifications  for  the  duties  to  be  discharged.  There  is 
no  more  reason  why  the  State  should  conduct  the  business  of 
insurance  than  why  it  should  conduct  any  other  business — 
that  of  groceries,  dry  goods  or  manufacturing.  It  is  safe  to 
say  that  in  the  distribution  of  labor  in  a  community  the  com- 
munity will  regulate  itself.  N'o  single  calling  can  secure  an 
undue  amount  of  profit  without  attracting  to  it  enough  com- 
petitors from  other  callings  to  keep  prices  at  a  proper  level. 

"What  would  have  been  the  burden  of  the  citizens  at  large  of 
the  two  states  of  Illinois  and  Massachusetts  if  they  had  been 
called  upon  to  pay  the  losses  of  their  two  cities  of  Chicago 
and  Boston  in  the  years  1871  and  1872?  Fortunately  for  them 
the  citizens  of  the  entire  country,  almost  of  the  entire  world, 
contributed,  through  the  fire  insurance  companies,  to  pay  the 
millions  that  were  required  for  the  purpose. 


13  THE   RELATION   OF   FIRE   INSURANCE 

PROFrrs  OF  THE  Insurance  Business. 

The  rates  obtained  by  insurance  companies  are  suflScieht 
simply  to  insure  the  payment  of  losses  and  a  moderate  profit 
on  the  capital.  N'o  comhinatiofij  in  any  business,  can 
possibly  be  injurious  to  the  public  which  furnishes  to  that 
public  the  article  produced  at  the  lowest  price  consistent 
Insurance  with  fair  vetum  upon  the  capital  invested  and 
Profits  proper  remuneration  for  the    labor    employed. 

The  statistics  of  all  the  companies  engaged  in  the 
business,  through  a  long  series  of  years,  show  that  the  profits 
of  the  business  of  insurance  have  been  less  than  three  per 
cent,  of  the  premiums  collected ;  dividends  paid  to  stock- 
holders in  excess  of  that  per  cent,  have  been  received  froM 
interest  returns  on  capital  and  invested  surplus — an  incre- 
ment which  would  have  come  to  the  owners  of  such  assets 
without  placing  them  at  the  risk  of  fire. 

The  laws  of  the  various  States  require  detailed  statements 
of  insurance  companies,  showing  every  item  of  their  income 
and  every  item  of  expense  ;■  the  amount  of  their  premiums 
received  and  of  losses  paid.  There  is,  in  fact,  no  other  business 
Publication  of  whoso  mcthods,  iucomc,  expenses,  losses  and  profits 
Insurance  are  thus  exploited  for  the  information  of  the  pub- 
Business  lie.  '  There  are  no  trade  secrets  in  fire  insurance. 
Details.  If  the  busiucss  is  conducted  at  unnecessary  expense 
or  with  undue  profit,  the  result  will  be  known  and  invite  new 
companies  to  enter  into  competition,  and  it  is  impossible  for 
any  single  company,  or  any  number  of  insurance  companies^ 
to  maintain  any  form  of  monopoly. 

It  is  doubtful  if  any  mercantile  or  manufacturing  business 
could  live  if  obliged  thus  to  publish  at  the  end  of  each  year,  for 
the  information  of  competitors  and  customers,  the  fullest 
details  of  its  transactions.  Indeed,  if  the  laws  now  in  force 
for  the  regulation  of  the  business  of  fire  insurance — the  com- 
pulsory publication  of  accounts,  etc., — were  applied  to  other 
branches  of  business,  manufacturing  and  mercantile,  the 
present  war  against  so  called  "trusts"  and  combinations  in 
those  branches  would  be  unnecessary. 


TO    THE    COMMUNITY. 


13 


What,  then,  has  been  the  protection  of  the  business  of  fire 
insurance  that  it  has  been  able  to  survive  this  public  exhibit  of 
all  the  details  of  its  methods  and  its  exact  profits  ?  It  has 
been  the  fact  that  the  profit  of  the  business  has  been  so  low  as 
not  to  encourage  the  organization  of  companies.  Does  not 
the  simple  fact  that  the  public  shows  its  unwillingness  to 
invest  in  insurance  stocks  on  other  than  a  6  per  cent,  basis, 
indicate  what  the  published  figures  of  the  business  clearly 
prove,  that  there  is  no  abnormal  profit  in  it  and  that  investors 
recognize  the  element  of  risk  and  have  an  apprehension  of  the 
facts,  or  surely  tlie  stocks  would  find  purchasers  on  a  better 
basis  than  6  per  cent.  ?  The  stocks  of  well- managed  railroads 
are  to-day  selling  on  a  4  per  cent,  basis. 

In  connection  with  this  should  be  taken  into  consideration 
that  new  companies  can  be  easily  organized.  They  have  to 
acquire  no  "  right  of  way,"  no  franchise  or  the  construction  of 
a  valuable  building  plant;  there  are  no  patent  rights  or 
copyrights  involved  ;  the  necessary  capital — and  the  law  does 
not  require  a  large  one, — with  a  little  ofiice  furniture  and  sta- 
tionery, is  all  that  is  needed  to  launch  a  new  fire  insurance 
company.  Surely  the  written  and  unwritten  law  of  trade  and 
the  rules  of  competition  can  be  relied  upon  to  regulate  the 
profits  of  such  a  business  without  legislative  interference. 

Adequate  Bates  are  in  the  Interest  of  the  Public. 
As  already  stated,  the  ascertainment  of  the  average  percent- 
age of  loss,  to  be  correct,  involves  comparison  by  insurance 
companies  of  their  experience,  in  the  interest  of  the  property 
owner,  as  well  as  in  the  interest  of  the  insurance  companies ; 
for  an  inaccurate  estimate  would  be  as  likely  to  be  too  high  as 
too  low.  If  it  is  too  high,  the  property  owner  will  be  called 
upon  to  pay  an  excessive  rate  of  premium ;  if  it  is  too  low,  the 
company  will  lose  money  ;  and  as  capital  is  simply  an  incident 
of  security,  grossly  inadequate  if  the  premium  should  prove 
insufiicient  for  the  risk  run,  the  property  owner  would  not 
secure  the  indemnity  he  is  paying  for.  The  total  capital  of  all 
the  fire  insurance  companies,  domestic  and  foreign,  reporting 
to  the  ISTew  York  Insurance  Department  at  the  close  of  1898, 


14:  THE   RELATION    OF   FIKE    INSURANCE 

was  less  than  ninety  millions  ($89,476,981),  while  the  amount 
of  premiums  held  by  them  for  their  insurance  in  force  was 
one  hundred  and  two  millions  of  dollars  ($102,872,081),  whereas 
the  losses  paid  for  the  single  year  named  were  seventy-one 
million^  {$71,781,^4''^),  a  sum^  it  will  he  ohserved,  which  was 
nearly  heven-eighths  of  the  total  capital  of  all  the  companies 
engaged  in  the  business. 

This  simple  but  significant  fact  shows  how  important  it  is 
for  the  community  at  large  that  the  average  rate  of  premium 
of  the  companies  should  be  high  enough  to  pay  the  losses  and 
expenses,  and  that  it  would  not  do  to  rely  upon  the  capital  in- 
vested as  a  security.  State  laws  recognize  this  fact  and  re- 
quire that  whenever  the  reserves  of  a  company  are  not  equal  to 
its  liabilities  so  that  its  capital  becomes  impaired,  the  company 
must  immediately  make  its  capital  good  or  retire  from 
business. 

Competition  in  Fire  Insurance. 

Competition,  which  is  claimed  by  some  to  be  the  life  of 
trade,  is  the  death  of  insurance  if  it  results  in  inadequate 
prices  or  rates.  The  proper  conduct  of  the  business  in 
the  interest  of  all  concerned  involves  accurately  ascertained 
and  equitable  rates;  a  cheap  price  for  insurance  always 
implies  reduced  security,  or  the  absence  of  that  which  it  is 
intended  to  purchase,  and  inadequate  rates  must  sooner  or 
later  result  in  worthless  policies. 

It  should  not  require  argument  to  demonstrate  that,  since 
all  the  companies  having  policies  on  a  burned  property  must 
incur  the  same  percentage  of  loss  and  also  the  same  percentage 
of  expense,  they  should  get  the  same  rate,  and  the  property- 
owner  may  well  be  suspicious  of  a  company  offering  to 
write  at  a  lower  rate  than  the  majority  of  companies  are 
willing  to  accept.  The  buyer  of  merchandise,  who  secures 
possession,  when  he  acquires  title,  of  an  article  of  whose  value 
he  is  a  competent  judge,  may  felicitate  himself  on  a  good  bar- 
gain if  he  gets  it  below  cost.  With  the  merchandise  in  his 
possession  and  sure  of  its  value,  he  has  no  reason  to  care 
whether  the  seller  lost  money  on  it  or  not,  but  it  is  not  so 


TO    THE    COMMUNITY.  ^  15 

with  insurance.  Insurance  is  not  a  "good  delivery  "  until  the 
policy  has  expired  or,  in  case  of  fire,  until  the  loss  has  been 
collected ;  and  he  who  secures  it  at  a  rate  below  cost  and  flat- 
ters himself  that  the  other  customers  of  the  company  do  not 
secure  the  same  terms,  or  overlooks  the  fact  that,  if  they  do, 
his  insurance  is  likely  to  be  worthless,  would  do  well  to  keep 
his  money  in  his  pocket  or  deposit  it  in  a  savings  bank.'' 

If  State  legislatures  would  let  insurance  companies  con- 
duct their  business  without  interference,  in  the  same  manner 
that  they  permit  merchants  to  conduct  their  callings  without 
legislative  restrictions,  the  business  would  regulate  itself; 
but  if  they  undertake  conscientiously  to  regulate  insurance 
in  the  real  interest  of  the  community  they  should  insist 
upon  intelligent  rating,  which  would  carefully  discriminate  by 
higher  charges  for  faults  of  construction,  faults  of  manage- 
ment and  negligence  resulting  in  fires,  and  upon  ca'reful  inspec- 
tion and  a  conference  to  secure  comparison  of  experience  and 
the  broadest  basis  for  fixing  prices.  It  should  be  borne  in  mind 
that  the  payment  for  3.  fire  by  an  insurance  company  simply 
distributes  the  loss  of  the  individual  upon  the  entire  com- 
munity ;  it  does  not  restore  anything.  Such  drains  upon  the 
resources  of  the  country  must  be  felt  in  higher  rates  for 
insurance,  higher  taxation,  and  in  financial  depression.  They 
are  to  a  large  extent  preventable,  and  intelligent  inspection 
and  discriminating  rating  by  insurance  companies  would  secure 
this  end. 

Proper  rates  Where  buildiugs  are  rated  by  a  system  which 
in  interest  of  chargcs  for  dcfccts  in  construction  and  faults  of 
management,  for  negligence  as  to  the  care  of 
ashes,  rubbish  and  other  faults  which  tend  to  cause  fires, 
a  charge  being  made  for  each  fault,  the  result  will  inevitably 
be  to  correct  such  faults  by  the  property-owner  who  will 
naturally  wish  to  save  the  annual  charge  which  would  other- 
wise be  a  burden  for  the  entire  life  of  the  structure ;  and 
those  who  erect  new  buildings  would  be  led  to  construct 
them  properly  with  a  view  to  saving  this  expense.  It  is  in 
this  way  that  the  business  of  insurance  properly  conducted 
by    combination    of    companies    to    lessen    the   expense    of 


16  THE    RELATION    OF    FIRE    INSURANCE 

inspection  and  to  secure  correction,  operates  for  the  improve- 
ment of  cities  and  the  reduction  of  the  fire  waste  more  poten- 
tially than  building  laws.  If  companies,  on  the  other  hand,  are 
compelled  to  perform  this  task  each  for  itself,  the  expense 
will  be  increased  to  a  point  where  they  cannot  profitably 
conduct  the  business,  moreover  in  the  case  of  a  property  requir- 
ing the  policies  of  twenty  or  more  companies  a  single  company 
could  not  secure  correction,  for  it  would  require  the  co-opera- 
tion and  influence  of  all  interested. 

It  may  safely  be  asserted  that  the  enormous  fire  waste  of  the 
country,  costing  at  present  at  the  rate  of  more  than  one  hundred 
and  twenty-five  million  dollars  per  annum,  or  more  than  ten  mil- 
lions a.  month,  would  be  materially  increased  but  for  the  inspec- 
tions and  suggestions  of  insurance  companies,  enforced  by  higher 
rates  charged  to  those  property-owners  who  are  careless  or  in- 
different as  to  fire ;  and  would  be  materially  decreased  if  legis- 
lative restrictions  in  various  states  did  not  prohibit  the  co-opera- 
Annuai  Fire  tiou  of  iusurauce  compauics  for  so  laudible  a 
Waste.  purpose  directly  in  the  interests  of  the  community. 

It  certainly  requires  no  argument  that  the  property-owner  who 
is  indifferent  to  safety  or  who  builds  insecurely  should  have  to 
pay  more  for  his  insurance  than  one  who  observes  every  precau- 
tion. Sweeping  cqnflagrations  in  cities  are  beyond  the  calcula- 
tions of  fire  insurance  companies  and  consume  the  savings  of 
^ears.  The  Chicago  fire  alone  required  the  savings  for  seven- 
teen years  of  active  business  of  those  companies  who  paid  in 
full,  showing  that  at  least  five  per  cent,  of  the  premium 
should  be  reserved  annually  in  the  surplus  to  meet  these 
abnormal  demands.  Nor  can  underwriters  rely  upon  the  cer- 
tainty that  serious  conflagrations  may  not  follow  each  other  at 
short  intervals,  as  in  the  case  of  the  Chicago  and  Boston 
conflagrations,  which  were  only  thirteen  months  apart. 

It  is  due  to  the  combined  influence  of  companies  in  the  prep- 
aration of  accurate  rating  schedules  that  superior  classes  of 
buildings,  calculated  to  form  fire  stops  in  compact  cities,  have 
been  erected.  It  has  improved  the  water  supply  of  com_ 
munities,  and  their  fire  departments.  "Without  the  influence  of 
such  discriminatory  insurance  rates  there   would  be  little  or 


TO   THE    COMMUNITY.  17 

no  inducement  for  safe  building  or  for  proper  attention 
to  fire-extinguishing  facilities.  Any  system  of  insurance 
rating  which  does  not  discriminate  hetween  safe  construction 
and  unsafe  construction  and  hetween  carefulness  and  negli- 
gence is  an  injury  to  the  community  and  a  gross  injustice 
to  that  tetter  class  of  citizens  who  huild  securely  and  manage 
their  affairs  jprudently.  The  information  necessary  to 
point  out  faults  of  construction  and  management  is  alone 
possessed  by  the  insurance  companies,  acquired  as  it  has  been 
by  them  in  investigating  and  paying  for  fires  through  a  long 
series  of  years.  It  would  be  as  shortsighted  to  compel  com- 
panies to  write  at  inadequate  rates  as  it  w^ould  be  to  require 
savings  banks  to  pay  six  per  cent,  interest  and  invest  their 
deposits  at  three  per  cent. 


COKPORATIONS    BENEFICIAL. 

Animosity  towards  corporations  grows  largely  out  of  mis- 
apprehension in  regard  to  them.     The  individual  citizen  does 
not  and  should  not  lose  his  rights  by  becoming  a  member  of 
a  corporation  any  more  than  by  becoming  a  mem- 

Corporation  a  -"^  "^    ^  .       . 

poor  man's  bcr  of  a  partnership  firm.  It  is  in  the  power  of 
opportunity.  ^^^  citizeu  to  bccomc  a  shareholder,  even  though 
his  means  are  limited.  $100  will  buy  a  share  in  a  new 
insurance  company.  He  is  thus  enabled  to  engage  in  a  busi- 
ness which  he  may  not  understand  and  to  secure  intelligent 
management  and  expert  knowledge  which  he  does  not  himself 
possess. 

Corjoorations  enable  people  of  small  means,  hy  joining 
forces  and  uniting  their  savings  to  secure  the  same  adva7itages 
for  business  purposes  that  millionaire  capitalists  enjoy  /  am.d 
a  corporation  thus  becomes  a  poor  man^s  opportunity. 
Were  it  not  for  corporations  millionaires  would  enjoy  a 
monopoly  of  all  large  enterprises  and  would  have  things  their 
own  way.  Among  the  stockholders  of  insurance  companies, 
thousands  in  number,  are  widows  and  orphans,  who  are  thus 
enabled  to  keep  their  modest  capital  employed  and  to  have 
an  active  partnership  in  commercial  undertakings. 


18  the  relation  of  fire  insurance 

The  Expense  of  the  Insurance  Business. 
It  is,  perhaps,  not  unnatural  that  property-owners,  having  in 
mind  only  the  simple  process  of  writing  a  policy  of  insurance  by 
an  agent  of  an  insurance  company  and  the^delivery  of  it  by  liim  to 
the  assured  or  property-owner,  should  regard  the  expense  of 
transacting  the  business  as  merely  nominal.  They  overlook 
the  fact  that  a  greater  number  of  persons  of  various  quali- 
fications must  be  employed  and  remunerated  before  the  policy 
of  insurance  can  be  written  and  delivered  by  the  agent,  and 
that  the  percentage  of  the  premium  required  to  pay  the  ex- 
penses of  the  business  (about  35  per  cent.)  is  not  greater 
than  that  involved  in  the  sale  of  merchandise,  a  piece  of  calico, 
for  example,  which  includes  tlie  profit  to  the  planter  who 
raises  the  cotton ;  to  the  compress  that  presses  it ;  to  the 
commission  merchant  who  sells  it ;  to  the  common  carrier 
that  carries  it  to  the  mill ;  to  the  mill  owner  who  manufac- 
tures it  into  cloth,  including  his  operatives;  to  the  dye  and 
print  establishment  that  prints  it ;  to  the  commission  merchant 
in  the  distributing  centre  of  a  great  city  who  sells  it ;  to  the 
wholesale  merchant,  who,  in  turn  sells  to  the  retailer,  who  in 
turn  delivers  it  to  the  consumer.  All  of  these  processes  in- 
volve separate  remunerations  and  an  aggregate  percentage  of 
expense  fully  equal  to  that  of  the  insurance  business,  which 
requires  the  agent  in  the  town,  who  writes  and  delivers  the 
policy  of  insurance :  the  expert  who  inspects  the  building 
from  time  to  time  during  the  term  of  the  policy  ;  the  rating 
expert  who  fixes  the  rate,  recognizing  every  point  of  construc- 
tion, occupancy  and  environment;  the  adjuster  who  must  adjust 
the  losses ;  the  accountants  and  book-keepers  in  the  offices  of 
the  company,  and,  lastly,  the  executive  officers,  who  must  em- 
ploy all  of  these  men,  supervise  their  work,  and  attend  to  the 
investment  of  the  assets  and  reserves  of  the  company,  not  for- 
getting office  rent,  stationery,  blank  books,  printing,  postage, 
and  last,  but  not  least,  taxes — the  latter  seldom  less  than  two 
and  a  half  per  cent,  of  the  premium,  to  be  paid  whether  the 
company  makes  money  or  not.  ,So  that  it  is  doubtful  if  any 
business  involves  greater  necessary  outlay  or  requires  higher 


TO   THE    COMMUNTY.  •       19 

executive  ability  or  a  broader  education  as  to   the   methods 
and  hazards  of  all  other  occupations. 

The  expenses  of  the  insurance  business  will  be  found 
to  be  not  far  from  35  per  cent.  Of  this  sum  about  one- 
half,  I7i  per  cent.,  would  be  required  for  the  compensation 
of  the  local  agents  in  the  cities  and  towns  throughout  the 
country,  out  of  which  they  have  to  pay  their  office  rent,  and  the 
cost  of  conveyances  for  visiting  risks  to  inspect  them,  some  of 
which  wonld  be  located  in  the  country  on  farms,  for  example. 
This  percentage  on  the  average  premiums  often  amounts  after 
a  hard  day's  labor,  in  the  average  town,  to  little  more  than  the 
wages  of  a  skilled  mechanic.  To  secure  this  commission  the 
agent  must  inspect  each  building  carefully,  write  and  deliver  the 
policy,  collect  the  premium  and  remit  it  to  the  company  and 
report  all  the  facts  of  the  risk  to  the  principal  office,  maintain- 
ing supervision  of  it  throughout  the  life  of  the  '"policy  in  the 
interest  of  his  company,  to  detect  and  report  any  change  or  in- 
crease in  the  hazard. 

In  addition  to  this  percentage  paid  to  the  agents,  5  per 
cent,  of  the  premium  would  be  required  for  adjusters  and 
special  agents,  traveling  experts  and  their  hotel  and  other 
traveling  expenses,  for  supervising  the  business,  going  from 
agency  to  agency. 

In  this  connection  it  may  be  well  to  state  that  money  ex- 
pended for  inspecting  buildings,  calling  the  attention  of 
ignorant  or  careless  property-holders  to  faults  of  manage- 
ment or  negligence,  to  faults  of  construction,  etc.,  etc.,  all  tend- 
ing to  prevent  fires,  and  especially  to  prevent  large  or  sweeping 
conflagrations,  is  money  actually  expended  in  the  interest  of 
the  public  or  insuring  property-owners. 

Ten  per  cent,  would  be  necessary  to  pay  the  official  staff  at 
the  principal  office,  clerks,  book-keepers,  rent,  advertising, 
postage,  expressage,  printing,  stationery,  blank  books,  etc.,  etc. 

Two  and  a  half  per  cent,  would  be  required  for  taxes.  At 
present  a  larger  sum  is  necessary  on  account  of  the  war  tax. 
In  this  connection  it  will  probably  surprise  those  engaged  in 
other  lines  of  business  to  learn  that  insurance  companies  are 
taxed,  not  upon  the  profit  of  their  business,  but  upon  their 


20 


THE   BELATION    OF   FIfiE   INSURANCE 


premiums,  which  is  equivalent  to  taxing  a  merchant  2i  per, 
Taxe«  should  be  ccnt.  on  liis  salcs.  It  somctimes  results  that  in 
upon  profits.  ^i  statc  in  whicli  the  business  has  been  unprofit- 
able the  company  actually  pays  a  tax  for  the  privilege  of 
leaving  more  money  in  the  state  than  it  takes  out  of  it,  and  so 
for  the  privilege  of  making  a  loss. 

There  have  been  years  when  the  insurance  companies  paid 
taxes  amounting  to  millions  of  dollars  when  their  total  husi- 
ness  showed  a  loss. 
In  1889  there  was  a  loss  of  5,369,983  when  a  tax  was  paid  of  2,368,360 


1891 
1892 
1893 


9,218,797 

6,377,489 

10,410,102 

1,919,650 


2,596,902 
2,727,974 
2,961,571 
3,900,134 


$33,296,021  $14,554,941 

The  ratio  of  taxes  paid  to  net  gain  {i.  e.,  excess  of  premi- 
ums over  losses  and  expenses)  for  the  remaining  years  of  the 
decade,  viz.:  1888,  1890,  1894,  1895,  1896,  and  1897  were  as 
follows : 


Year. 

No.  of  Cos. 

Ratio  of  Taxes  to 
Net  Gain. 

1888 

152 

■    323.69 

1890 

148 

88.49 

1894 

121 

28.31 

1895 

121 

33.11 

1896 

134 

25.38 

1897 

152 

36.45 

Can  any  other  business  show  such  a  burden  of  taxation  ? 

Charles  Sumner,  when  United  States  Senator,  wisely  said 
"  a  tax  upon  insurance  is  a  tax  upon  a  tax  and,  tlierefore, 
a  barbarism."  As  the  insurance  company  must  collect  enough 
from  property  owners  to  pay  its  losses  and  expenses  and  yield 
a  living  profit,  it  is  clear  that  the  citizens  of  a  state,  after  all, 
have  to  pay  the  tax,  with  the  expense  of  collecting  it  added — 
which  is  a  farce.  A  tax  upon  the  profits,  on  the  other  hand, 
is  a  tax  upon  the  insurance  company  and  one  that  it  should 
pay  without  complaining.  A  tax  upon  the  premium  is  a 
tax  upon  the  assured  property-owner  and  one  he  ought  not 


TO    THE    COMMUNITY.  21 

to  pay.  'No  insurance  company  would  complain  of  being 
taxed  2J  per  cent,  on  that  portion  of  the  premiums  received 
in  a  state  after  deducting  the  losses  and  expenses,  paid  to  its 
citizens,  and  this  should  be  the  basis  of  taxation  every- 
where. The  rate  of  tax  should  be  the  same  as  that  imposed  by 
the  state  on  personal  property  in  the  state,  ahd  beyond  this 
there  should  be  no  tax — either  state,  county  or  municipal. 

In  his  annual  report  for  1898,  Superintendent  Matthews,  of 
the  State  of  Ohio,  says. 

"  Seventeen  of  the  companies  doing  business  in  Ohio  last  year  paid 
out  for  losses  more  than  they  received  in  premiums."  *  *  *  "They 
not  only  did  not  have  any  of  the  premiums  in  their  possession  at  the 
close  of  the  year,  but  paid  back  to  the  people  an  additional  sum  of 
$115,397.31.  Upon  what  principle  of  equity  is  based  this  law  of  requiring 
gross  premiums  to  be  taxed  I  am  unable  to  understand.  It  seems  to 
me  that  fair  dealing  would  require  net  premiums  only  to  be  taxed,  or 
that  which  is  left  after  payment  of  losses,  commissions  and  return 
premiums." 

And  he  adds : 

' '  These  startling  figures  answer  the  question  probably  so  frequently 
asked,  why  have  we  not  more  good  fire  insurance  companies  in  Ohio  ?  It 
would  seem  that  the  profits  in  the  business  do  not  justify  the  risk  of 
investment,  and  surplus  capital  seeks  employment  in  other  enterprises." 

The  Percentage  of  Loss. 
This  may  be  expected  to  be  55  per  cent,  of  the  premium. 
The  largest  and  most  successful  companies  have  experienced 
not  less  than  this  percentage  of  loss  as  the  result  of  the  years 
they  have  been  in  business.  If  to  this  percentage  be  added  the 
thirty-five  for  expenses,  there  will  be  left  ten  per  cent. — five 
of  which  should  be  accumulated,  as  already  stated,  for  sweeping 
conflagrations,  and  the  remaining  five  per  cent,  will  probably 
not  be  regarded,  by  those  engaged  in  any  other  business  as 
an  abnormally  high  profit,  leaving  out  of  consideration  the 
great  risk  run  by  those  whose  capital  is  invested.  Would  any 
tradesman,  merchant  or  manufacturer  regard  5  per  cent,  on 
his  sales  as  an  undue  profit,  especially  in  a  business  where  the 
single  transactions  are  as  small  as  those  of  insurance  ? 

Yaltjed  Policy  Laws. 

No  legislation  more  inimical  to  the  interests  of  the  com- 
munity or  injurious  to  the  business  of  fire  insurance  has  been 


22  THE   RELATION   OF  FIBE   INSURANCE 

enacted  of  late  years  than  so-called  "  Yalued  Policy  Laws," 
which  require,  in  the  event  of  the  destruction  of  a  building, 
that  its  owner  shall  receive  the  full  amount  for  which  he  has 
effected  insurance  upon  it,  even  though  it  be  more  than  the 
actual  cash  value  of  the  property  destroyed.  As  already  stated, 
an  insurance  policy  is  not  an  undertaking  to  pay  a  stipulated 
sum  in  the  event  of  loss,  but  a  contract  of  indemnity  or  pro- 
tection, so  that  when  a  property-owner  pays,  say,  $50  for  a 
$5,000  insurance  policy,  he  is  paying  $50  for  $5,000  worth  of 
protection  against  loss  by  fire  for  a  given  time — the  term  of 
the  policy,  one  year,  three  years,  or  five  years.  If  during  that 
period  a  loss  occurs  he  will  receive  the  amount  of  the  loss,  not 
exceeding  the  amount  named  as  the  limit  of  insurance.  He 
may  have  five  or  more  partial  losses  on  the  same  property 
during  the  time  for  which  the  policy  is  written  and  receive 
pay  for  each  of  them  and  still  not  exhaust  the  whole  amount 
of  protection,  unless  the  aggregate  sums  paid  equal  the 
amount  of  limit  in  the  policy. 

The  standard,  legal  form  of  an  insurance  policy  contracts 
to  insure  the  property-owner  in  the  following  words: 

^^ Against  all  direct  loss  or  damage  hy  fire  to  am.  amount  not 
exceeding  five  thousam^d  dollars P 

Overlooking  these  unmistakable  terms,  some  property-owners 
and  legislators  infer  that  the  agreement  is  to  pay  five  thousand 
dollars  in  the  event  of  the  destruction  of  the  property,  though 
it  might  not  be  worth  more  than  one  thousand  dollars.  They 
also  overlook  the  fact  that  the  policy  may  be  written  for  one 
year  or,  as  is  often  the  case,  for  five  years,  and  that  the  value  of 
the  building,  by  age,  use,  decay,  &c.,  may  be  much  less  at  the 
end  of  the  term  than  at  its  beginning.  A  "  valued  policy " 
law  would  in  such  case  work  most  unjustly. 

What  would  be  thought  of  a  law  compelling  the  surety  on 
a  fidelity  or  indemnity  bond  to  pay  the  face  of  the  bond, 
without  regard  to  the  amount  of  shortage  or  damage?  And 
yet  snch  a  law  would  be  exactly  in  line  with  a  valued  policy 
law  requiring  a  company  to  pay  the  face  of  the  policy  when 
the  actual  loss  or  damage  might  not  be  ten  per  cent,  of  the 
amount. 


TO   THE   COMMUNITY.  23 

Those  advocating  such  laws  argue  that  insurance  companies 
should  investigate  the  values  of  the  properties  they  insure 
if  they  do  not  wish  to  pay  the  full  amount  of  the  insurance, 
and  that  it  will  be  their  own  fault  if  they  are  mulcted  an 
undue  amount.  This  argument  overlooks  the  fact  that  to 
properly  ascertain  the  actual  cash  value  of  a  building  requires 
a  careful  examination  by  expert  builders,  masons,  carpenters, 
etc.,  who  would  charge  for  their  services  in  many  cases — 
especially  in  the  case  of  buildings  of  small  value — those 
of  the  poorer  classes  and  particularly  farm  buildings  in  the 
country,  which  they  would  charge  extra  to  visit — as  much  as, 
or  more  than,  the  whole  premium  paid  for  the  insurancCo  Such 
expensive  expert  examinations  ought  to  be  necessary  only  in 
case  of  a  lire  to  ascertain  the  amount  of  loss,  and,  therefore, 
only  in  the  one  case  of  a  burned  property  out  of  the  hun- 
dreds which  do  not  burn.  A  "Yalued  Policy"  law,  thus 
works  most  oppressively  upon  the  property-owners  of  small 
holdings  and  least  oppressively  on  the  properties  of  larger 
value,  whose  owners  do  not,  as  a  rule,  seek  an  undue 
amount  of  insurance,  and  the  requirement  entails  that  the 
same  labor  and  expense,  shall  be  incurred  as  to  each  of  hun- 
dreds of  risks  to  prevent  the  single  property-owner  who  may 
have  a  loss  from  collecting  more  than  he  is  entitled  to  receive. 

Why  should  hundreds  of  jproperty -owners  he  subjected  to 
the  expense  of  higher  rates  of  insurance,  made  necessary  ly 
the  expense  of  ascertaining  the  actual  cash  'value  of  their 
own  jproperty,  as  well  as  that  of  the  one  who  has  a  fi7'e, 
when  that  one  needs  no  expert  investigation  to  ascertain 
his  value? 

The  mam,  who  insures  his  huilding  knows  hetter  than  anyone 
else  what  it  is  worth  /  he  is  not  obliged  to  pay  for  more 
insurance  than  would  protect  him  for  its  full  value.  If  he 
does,  it  is  safe  to  assume  he  contemplates  a  fraud  upon  the 
insurance  company  and  should  not  be  assisted  in  consum- 
mating it  by  the  operation  of  law  on  the  plea  that  he  ought 
to  receive  the  full  amount  of  the  limit  named  in  the 
policy  simply  because  he  voluntarily  and  knowingly  paid 
for    more    than    he    knew    was    necessa/ry    to  protect   hirn. 


24  THE   RELATION   OF    FIRE    INSURANCE 

against  actual  loss.  A  valued  policy  law  is  in  reality  a 
premium  upOn  fraud  'and  an  incentive  to  incendiarism  or 
burning  for  gain,  imposing  unnecessary  burdens  upon  honest 
citizens,  who  must  be  taxed  in  higher  rates  of  premium  to 
pay  for  the  exaggerated  claims  of  an  unprincipled  few. 

Further,  the  argument  in  favor  of  valued  policy  laws  also 
overlooks  the  obvious  fact  that  an  honest  claimant  is  sure  to 
receive  the  full  amount  of  his  loss  in  any  event,  since  no  intelli- 
gently managed  insurance  company  would  be  so  shortsighted  as 
to  refuse  to  pay  an  honest  claim,  realizing  that,  in  case  it  should, 
it  would  be  forced  to  do  so  at  law,  for  courts  and  juries  never 
Insurance  Sympathize  with  corporations,  but  always  with 
Companies  the  individual.  Moreover,  all  insurance  policies 
1  igious  QQYii2im  a  clause  which  provides  that  in  case  of 
differences  between  the  owner  and  the  insurance  company 
the  matter  in  dispute  shall  be  left  to  disinterested  appraisers, 
chosen  by  each,  who,  in  turn,  shall  select  a  third  as  um- 
pire. A  man  is  thus  entitled  to  have  for  his  appraiser  any 
neighbor  in  whom  he  trusts.  It  would  with  this  provision  be 
impossible  for  an  insurance  company  under  its  policy  to 
escape  paying  all  to  which  any  claimant  is  entitled.  Insurance 
companies  are  not  litigious ;  they  cannot  afford  to  go 
into  courts  except'  with  clean  hands  and  with  claims  of 
unmistakable  justice.  The  statements  of  the  companies 
reporting  to  the  New  York  Insurance  Department  show  that 
a  sum  less  than  two  per  cent,  of  the  amount  of  losses  paid 
by  them  during  the  past  year  was  in  suit  at  its  close,  and  as 
those  losses  in  suit  were  the  result  of  an  average  of  at  least 
three  years'  business,  it  follows  that  the  claims  contested  hy 
companies  are  less  than  one  per  cent,  of  the  whole  amov/nt  of 
the  losses  incurred.  When  it  is  remembered  how  many  fraud- 
ulent claims  are  made  upon  insurance  companies,  it  becomes  a 
serious  question,  not  whether  too  many  claims  are  contested  by 
them,  but  whether  enough  are  resisted  to  protect  the  interests 
and  insure  the  security  of  their  more  honest  claimants. 

There  is  no  need  of  "valued  policy"  laws.  They  simply  en- 
tail an  unnecessary  expense  upon  ninety-nine  men  who  do  not 
burn  in  order  that  one  man, presumably  a  dishonest  claimant,may 


TO  THE   COMMUNITY.  25 

receive  more  than  he  is  entitled  to.  The  increased  expense  of 
transacting  the  business,  with  the  care  made  necessary  by  a 
valued  policy  law,  must  inevitably  raise  the  rates  of  premium 
and  cost  of  insurance,  so  that  such  laws  from  every  view- 
point are  shortsighted  and  directly  against  the  interests  of  all 
honest  property-owners  who  should  use  their  influence  and 
arguments  to  induce  their  representatives  in  the  State  legisla- 
tures to  repeal  them  wherever  they  are  in  force  and  to  oppose 
them  whenever  introduced. 

Probably  no  stronger  argument,  certainly  it  would  be  dif- 
ficult to  find  a  more  clearly  expressed  one,  could  be  offered 
against  valued  policy  laws  than  that  in  the  report  of  the 
Hon.  W.  S.  Matthews,  Superintendent  of  Insurance  of  the 
State  of  Ohio,  for  the  current  year.     He  says  : 

♦'The  Ohio  valued  policy  law,  Section  3643,  provides  that,  in  the 
event  of  total  destruction  of  property  insured,  the  amount  of  insurance, 
and  not  the  value  of  the  property  insured,  should  be  the  measure  of  the 
loss,  and  the  amount  the  company  shall  be  obliged  to  pay.  This  law- 
was  passed  in  1879,  presumably  for  the  purpose  of  protecting  the  people 
against  what  was  supposed  to  be  unfair  adjustment  of  losses.  The  theory 
no  doubt  in  the  minds  of  those  responsible  for  this  legislation  was  that 
the  companies  were  to  blame  for  the  amount  of  insurance  written  in  the 
policies,  and,  having  collected  the  premium,  the  assured  was  entitled,  in 
the  event  of  loss,  to  all  the  insurance  he  had  paid  for.  This  reasoning 
is  all  right  when  applied  to  the  purchase  of  property,  but  it  is  not  correct 
when  applied  to  the  purchase  of  insurance  on  property.  One  is  a  con- 
tract for  the  exchange  of  equivalents,  while  the  other  is  the  purchase  of 
an  agreement  to  indemnify,  or  to  make  good  a  loss  if  a  loss  occurs. 
The  nature  of  the  two  contracts  is  entirely  different.  A  iire  insurance 
contract  is  not  a  contract  to  pay  unconditionally  the  sum  named  in  the 
policy  tmless  the  loss  sustained  is  equal  to  that  sum.  The  sum  named 
in  the  policy  is  simply  the. measurement  of  the  company's  maximum 
liability.  The  objection  to  a  valued  policy  law  is  that  it  ignores  the 
fundamental  principle  of  insurance,  which  is  that  of  indemnity  pure  and 
simple,  and  compels  the  company  to  pay  the  full  amount  named  in  the 
policy  although  the  actual  loss  may  be  but  one-half  or  two-thirds  that 
amount.  _  To  put  this  construction  upon  the  obligation  of  the  insurance 
contract  is  to  convert  the  w^hole  scheme  of  insurance  into  a  money-making 
and  gambling  transaction.  It  is  a  statute  that  may  make  it  more  profit- 
able to  destroy  property  than  to  keep  it.  It  is  a,  statute  that  places 
before  every  evil  disposed  person  the  temptation  to  over-insure  and  then 
burn  his  property  for  the  gain  there  is  in  it.  And  even  where  the  assured 
is  honest,  he  is  liable  to  be  made  more  indifferent  as  to  the  care  he  should 
take  of  his  property  by  over-insurance.  Every  property- owner  should 
at  least  carry  some  of  the  risk  which  attaches  to  property.  It  is  not  a 
statute  in  the  interest  of  honest  policy-holders,  but  only  in  the  interest 
of  the  dishonest  man  who  wants  to  speculate  off  of  insurance.  The 
honest  policy-holders  of  the  State,  therefore,  lose  in  two  ways  on  account 
of  this  law.  First,  because  of  the  increased  rate  of  insurance  on  account 
of  the  increased  moral  hazard  superinduced  by  the  valued  policy  law. 


2G 


THE    RELATION    OF    FIRE    INSURANCE 


And,  second,  because  of  the  increased  fire  exposure  on  account  of  the 
incentive  to  burn  or  to  be  careless  of  excessively  insured  property.  It  is 
very  evident  that  if  valued  policy  laws  increase  the  fire  loss,  they  miist 
necessarily  increase  rates  of  insurance,  for  rates  increase  or  decrease  in 
proportion  to  the  increase  or  decrease  of  fire  loss.  The  only  protection 
a  company  has  against  adverse  conditions,  whether  in  legislation  or 
society,  is  the  adjustment  of  rates.  The  extra  loss  to  companies  on 
account  of  the  valued  policy  law  is  certainly  shifted  from  them  on  to  the 
honest  policy-holders  of  the  State.  The  policy-holders,  therefore,  are 
the  ones  to  pay  these  extra  losses,  and  instead  of  this  law  being  a  beftefit 
to  them  it  is  an  expensive  and  costly  experiment.  If  the  rates  for  fire 
insurance  are  lower  in  Philadelphia  than  Chicago,  or  in  Boston  than  in 
St.  Louis,  it  is  because  the  fire  loss  to  amount  at  risk  is  continuously 
lower  in  Philadelphia  and  Boston  than  in  the  other  places.  If  they  are 
lower  in  one  State  than  in  another,  or  in  one  section  of  the  country  than 
in  another  section,  it  is  because  the  general  conditions  existing  in  one 
State  or  section  are  more  favorable  to  fire  losses  than  in  the  other.  Any 
condition,  therefore,  such  as  moral  hazard,  poor  buildings,  poor  fire 
protection,  or  valued  policy  laws,  that  tend  to  increase  the  expenditures 
of  companies  necessarily  increases  rates  and  makes  insurance  more 
costly  and  burdensome  to  the  general  public." 

"  /  can  conceive  of  nothing  that  the  State,  in  its  legislative  capacity, 
can  do,  more  dangerous  to  'the  prosperity  of  the  State,  and  to  public 
morals,  than  to  pass  a  law  that  invites  wilful  and  malicious  destruc- 
tion of  property,  or  encourages  carelessness  in  the  care  of  property. 
In  legislating  upon  the  subjet  t  of  insurance,  the  great  and  paramount 
concern  of  the  State  should  be  to  eliminate  every  feature  of  speculation 
and  gain  from  the  transaction.'''' 

And  he  suggests,  with,  great  force : 

••  Suppose  the  State  itself  should  undertake  the  business  of  insuring 
the  property  of  the  people,  is  it  to  be  supposed  that  it  would  enact  a 
valued  policy  law?  If  the  State  should  undertake  such  business,  I 
predict  the  first  step  taken  would  be  to  reenact  an  entire  new  code  of 
insurance  laws,  and  in  this  new  code  the  State  would  throw  out  every 
unjust  restriction  upon  the  freedom  of  contracts,  eliminate  the  valued 
policy  law,  limit  the  amount  of  insurance  to  be  carried  probably  to  the 
assessed  value  of  the  property,  establish  a  uniform  tariff  of  rates,  and 
make  provision  for  thorough  investigation  into  the  cause  and  origin  of 
all  fires,  and  provide  that  in  no  case  where  a  loss  has  been  sustained 
shall  there  be  paid  a  greater  amount  than  the  loss  incurred  at  the  time 
of  the  fire.  If  the  State  undertaking  to  do  the  business  of  insurance 
would  adopt  such  provisions  of  law  as  a  matter  of  safety  and  justice 
to  itself,  why  should  it  not  do  so  with  respect  to  companies  or  corpora- 
tions ?  " 

Could  a  more  forceful  argument  be  made  against  a  valued 
policy  law,  and  could  it  emanate  from  a  more  reliable  authority 
than  the  insurance  official  of  a  great  State  in  which  such  a  law 
has  been  in  force  since  1879,  and  in  which  seventeen  com- 
panies paid  to  the  citizens  of  the  State  in  losses  and  expenses 
one  hundred  and  fifteen  thousand  dollars  more  than  they  col- 
lected, after  paying  a  tax  for  this  privilege  of  two  and  one-half 


TO    THE    COMMUNITY.  27 

per  cent,  on  the  gross  premiums,  which  amounted  to  nearly 
five  thousand  dollars?  'No  wonder  Superintendent  Matthews, 
in  commenting  upon  the  business  in  Ohio,  sajs  : 

"  The  general  condition  of  the  business  of  fire  insurance  in 
Ohio  for  1898  was  anything  but  satisfactery  or  profitable." 

Importance  of  Insurance. 

Few  persons  realize  to  what  importance  insurance  has  grown 
as  a  factor  in  the  commercial  world.  It  is  to-day  the  security 
on  which  most  enterprises  rest,  without  which  their  projectors 
would  hesitate  to  engage  in  them.  The  lender  could  not 
afford  to  trust  the  borrower  if  the  ability  of  the  latter  to  pay 
the  debt  was  liable  to  be  cancelled  by  a  fire.  The  last  census 
report  showed  that  the  real  estate  mortgage  loans  of  the 
United  States  amounted  to  more  than  six  thousand  million 
dollars  ($6,019,679,985.)  Of  this  enormous  sum  the  citizens 
of  Illinois  alone  had  borrowed  three  hundred  and  eighty-four 
millions  ;  Massachusetts  three  hundred  and  twenty-three 
millions ;  New  York  sixteen  hundred  and  seven  millions ; 
Pennsylvania  six  hundred  and  thirteen  millions.  It  is  safe  to 
say  that  all  of  these  loans  are  based  upon  insurance  policies 
held  as  collateral  security.  Can  anyone  estimate  the  conse- 
quences if  these  mortgages  should  be  called  in  by  the 
lenders,  deprived  of  their  insurance  collateral  and  unwilling 
to  trust  their  money  to  the  contingencies  of  fire  !  Can  any- 
one doubt  that  such  action  would  be  taken  if  fire  insurance 
capital  should  be  withdrawn  from  a  business  made  unprofit- 
able by  the  burdens  which  mistaken  legislation  is  increasing 
year  by  year ! 

There  is  probably  to-day  not  an  enterprise  in  the  business 
world  which  does  not  depend  upon  the  security  of  Fire  Insur- 
ance. It  protects  alike  the  dwelling  of  the  laborer  and  the 
palace  of  the  millionaire  ;  the  business  of  the  retail  dealer  and 
the  aggregated  values  of  tlie  largest  manufacturers.  Without 
the  assurance  which  its  protection  affords  it  is  doubtful  if  the 
enterprise  of  those  possessing  capital  would  be  exerted  suffici- 
ently to  give  employment  to  the  wage-earner  or  to  keep  the 


Zb  THE    RELATION    OF    FIRE   INSURANCE 

wheels  of  trade  and  manufacture  in  motion.  Commerce 
would  be  paralyzed,  for  credit  would  be  withheld  where  con- 
fidence would  be  wanting  in  the  ability  of  the  purchaser  to 
pay.  It  is  the  handmaid  of  commerce  and  the  guardian  of 
industry.  Ventures  are  made  without  hesitation  which  would 
appall  those  embarking  in  them  if  liable  to  miscarry  through 
a  single  fire;  large  values  are  boldly  collected  to  meet  the 
requirements  of  commerce  where  an  accidental  conflagration 
might  destroy  them  in  a  night ;  merchants  sell  their  goods  on 
extended  credits  knowing  that  although  the  misfortune  of  fire 
may  overtake  the  purchaser  his  insurance  indemnity  will 
enable  him  to  pay  for  them  not  less  readily  than  before  )  vast 
industries  giving  employment  to  thousands  of  operatives  and 
supporting  whole  towns  by  their  enterprise,  testify  not  more  to 
the  courage  of  their  projectors  than  to  the  confidence  they 
repose  in  the  protection  which  insurance  gives  to  their  under- 
takings ;  and,  to-day,  insurance  is  as  certainly  a  necessity  of 
commerce  and  manufacture  as  is  the  railroad  or  telegraph  or 
steam  power  itself;  it  is  as  essential  to  the  commercial  system 
of  the  world  as  the  woof  thread  to  the  fabric  of  the  loom. 

Probably  no  more  eloquent  tribute  to  the  spirit  of  insurance 
is  to  be  found  than  the  utterance  of  the  French  jurists,  at  the 
close  of  their  report  to  the  council  of  state,  on  the  subject  in 
the  code  of  commerce : 

"Insurance  may  justly  be  deemed  one  of  the  noblest 
creations  of  human  genius.  From  a  lofty  height  it  surveys 
and  protects  the  commerce  of  the  world.  It  scans  the  heavens ; 
it  consults  the  seasons  ;  it  interrogates  the  ocean,  and,  regard- 
less of  its  terrors  or  caprice,  defines  its  perils  and  circumscribes 
its  storms.  It  extends  its  cares  to  every  part  of  the  habitable 
globe,  studies  the  usage  of  every  nation,  explores  every  coast, 
and  sounds  every  harbor. 

"  To  the  science  of  politics  it  directs  a  sleepless  attention ;  it 
enters  the  council  of  monarchs,  watches  the  deliberation  of 
statesmen,  weighs  their  motives  and  penetrates  their  designSo 
Founding  on  these  vast  materials  its  skillful  calculations, 
secure  of  the  result,  it  theJi  addresses  the  hesitating  merchant: 
*  Dismiss  your  anxiety  and  fear;  there  are  misfortunes  that 
humanity  may  deplore  but  cannot  prevent  or  alleviate.  Such 
are  not  the  disasters  you  dread  to  encounter.     Trust  in  me, 


TO   THE    COMMUNITY.  29 

and  they  shall  not  reach  you.  Summon  all  your  resources,  put 
fortli  all  your  skill,  and  with  unfaltering  courage  pursue  your 
adventures.  Succeed,  and  your  riches  are  eidarged;  fail,  and 
they  shall  not  be  diminished.  My  wealth  fehall  supply  your  loss. 
Rely  on  me,  and  for  your  sake,  at  my  bidding,  the  arm  of  your 
enemies  shall  be  paralyzed,  and  the  dangers  of  the  ocean  or 
the  flaming  pile  cease  to  exist.'  The  merchant  listens  and 
obeys,  and  is  rewarded.  Thousands,  tempted  by  his  success, 
follow  his  example.  Those  whom  it  had  long  separated,  the 
ocean  now  unites.  The  quarters  of  the  world  approach  each 
other  and  are  bound  by  the  permanent  ties  of  mutual  interest 
and  mutual  benefit." 

Are  Combinations  of  Underwriters  Inimical  to  the 
Interests   of  Property-Holders  ? 

"We  trust  we  have  explained  the  relation  of  insurance  to  the 
community  in  such  manner  as  to  secure  a  negative  to  this 
important  question.     We  trust  we  have  established  as  facts  : 

First — That  Fire  Insurance  is  a  commercial  and  community 
necessity. 

Second — That  a  policy  of  fire  insurance  is  a  contract  of 
indemnity  ;  and 

Third — That  the  reliability  of  the  indemnity  depends  upon 
the  sufficiency  of  the  rate  of  premium,  because 

1.  State  laws  properly  require  that  if  the  capital  is  impaired 
it  must  be  made  good,  or  the  company  must  cease  doing 
business.  If  companies  cannot  pay  their  losses  and  expenses 
and  secure  a  fair  profit  return  on  the  capital  adventured  they 
will  neither  be  organized  nor  continue  in,  business  if  already 
organized  ;  therefore,  capital  is  only  an  incident  of  the  busi- 
ness and  an  adequate  rate  is  indispensable.  Insurance  capital 
must  and  should  have  a  fair  return  for  the  risk  run — a  law  of 
community. 

2.  Adequate  and  equitable  rates  are  necessary  for  the  pro- 
tection of  the  policy-holder  as  well  as  for  the  protection  of  the 
stock-holder.  Otherwise  the  burden  of  insurance  will  be 
unequally  distributed  and  one  man's  property  will  be  pro- 
tected, if  insured  below  a  proper  rate,  at  the  expense  of 
another. 


30  THE   RELATION    OF   FIKE   INSURANCE 

8.  As  inspection  and  supervision  necessary  for  the  ascer- 
tainment of  correct  rates  can  be  as  cheaply  performed  for  one 
hundred  companies  insuring  a  single  building  or  risk  as  for 
any  one  of  them,  co-operation  is  advisable  to  reduce  the 
expense  percentage.  At  the  same  time  it  would  reduce  the 
loss  percentage  by  securing  correction  of  faults  which  would 
cause  fires  and  by  encouraging  proper  construction  which  would 
tend  to  prevent  their  spread,  and  so  result  in  cheaper  insur- 
ance to  property-ownerSo  In  this  view,  co-operation  of 
insurance  companies  is  directly  in  the  interest  of  the  com- 
munity and  should  be  encouraged  and  not  prohibited.  Laws 
which  prevent  companies  from  co-operating  in  this  way,  and 
compel  each  company  to  inspect  each  building  for  itself,  must 
increase  the  expenses  of  transacting  the  business  and  result  ij\ 
unnecessarily  higher  rates  of  premium. 

4.  As  the  labor  required  to  ascertain  and  fix  proper  and 
equitable  rates  for  a  building  and  its  contents  can  be  per- 
formed by  the  same  expert  in  the  same  time  for  one  hundred 
companies  who  insure  it  as  for  any  one  of  them,  co-operation  to 
ascertain  and  fix  rates  would  result  in  a  saving  of  this  expense 
also,  and  so  further  cheapen  the  cost  of  insurance  to  the 
property-owner  and  .be  directly  in  the  interest  of  the  public. 

5.  As  rates  of  insurance  are  based  upon  the  experience  of 
the  companies  through  terms  of  years  on  the  various  classes  of 
hazards,  most  of  which  are  so  few  in  number  that  there  would 
not  be  enough  of  a  class  in  a  single  state  or  on  the  books 
of  a  single  company  to  determine  the  experience  cost  of  insur- 
ing them,  the  statistics  of  experience  should  be  collated  from 
the  whole  country,  in  justice  to  the  owners  of  such  risks, 
and  not  based  upon  the  abnormal  loss  rate  of  a  small  class  in 
a  single  state,  which  would  indicate  the  necessity  for  an 
exorbitant  rate  on  the  class  in  such  state,  when  in  fact  it 
might  not  be  necessary. 

6.  The  burden  of  insurance  rates  should  be  graded  according 
to  the  percentage  of  insurance  carried  to  value,  just  as  munici- 
pal and  state  taxes  are  based  upon  uniform  assessments  of  the 
same  percentage  of  value ;  and  the  property-owner  who  insures 


TO    THE    COMMUNITY.  31 

a  proper  percentage  of  his  value  is  entitled  to  a  lower  rate  than 
one  who  insures  a  small  percentage,  there  being  a  difference 
between  the  cost  of  insuring  different  percentages  of  value 
even  greater  than  the  difference  between  that  of  wholesale  and 
retail  prices  in  mercantile  business.  Otherwise  one  class  of 
citizens  would  be  securing  insurance  at  a  lower  cost  than 
another  and,  therefore,  at  the  expense  of  another.  It  should 
be  borne  in  mind  that  insurance  is  in  fact  a  tax,  and  the  cost 
of  the  tax  should  be  apportioned  fairly  or  equalized  among  all 
contributing,  not  only  according  to  faults  of  construction  and 
other  features  that  add  to  the  hazard  of  fire,  but  according  to 
the  percentage  of  the  value  insured.  If,  as  has  been  well 
said,  "  It  would  be  the  height  of  absurdity  for  a  nmnicipality 
to  attempt  to  establish  and  collect  a  rate  of  taxation  without 
an  assessment  of  the  value  of  each  piece  of  property  taxed, 
and  no  community  would  attempt  such  an  absurdity,"  it 
would  be  an  equal  absurdity  to  charge  those  property  owners 
who  insure  only  a  small  percentage  of  their  value  at  the  same 
rate  as  those  who  insure  a  proper  percentage  and  then  base 
the  rate  charged  to  both  on  the  percentage  of  the  total  losses 
to  the  total  premiums,  with  the  inevitable  result  of  placing  the 
burden  unduly  upon  those  who  have  contributed  most  liberally 
to  the  common  loss  and  expense.  Co-operation  of  companies, 
therefore,  is  necessary  to  provide  for  this  in  percentage  co- 
insurance clauses  in  all  policies. 

It  follows,  therefore,  since  co-operation  is  necessary 

To  ascertain  cost ; 

To  ascertain  and  secure  adequate  rates  for  indemnity ; 

To  prevent  fires  and  thus  cheapen  the  cost  of  insurance ; 

To  divide  and  lessen  expense  and  so  to  further  cheapen  the 
cost  of  insurance ; 

To  secure  that  the  same  percentage  of  insurance  should  be 
carried  by  all  owners  or  a  difference  in  rate  made — the  princi- 
ple of  co-insurance  or  average  which  has  always  been  a  feature 
of  marine  insurance ; 

That  the  conference  of  insurance  companies  and  their 
co-operation  must  be  in  the  interest  not  only  of  the  companies 
themselves,  but  of  their  customers,  the  insuring  public. 


32  THE    KELATION    OF    FIRE    INSURANCE 

Co-operation  in  insurance  is,  therefore,  not  a  ^' trust,"  in  the 
modern  and  ordinary  acceptation  of  tlie  term,  by  which  is 
meant  a  combination  of  those  engaged  in  a  particular  busi- 
ness to  extort  improper  prices  from  their  fellow-members  of 
the  community  and  so  to  obtain  an  undue  share  of  community 
benefit.  There  is  not  now  and  never  has  been,  any  *^  pooling  " 
in  the  business  of  insurance.  The  ease  with  which  any 
number  of  citizens  can  organize  an  insuraiice  company  will 
always  prevent  a  monopoly  of  the  business,  and  those 
engaged  in  it  can  always  be  relied  upon,  in  their  own 
interests,  to  regulate  their  prices  with  reference  to  this  important 
fact.  Exorbitant  rates  and  abnormal  profits  always  attract  com- 
petition, which  results  in  inadequate  rates,  and  those  engaged  in 
the  business  thoroughly  understand  this.  Managed  on  true  un- 
derwriting lines,  an  insurance  company  is  simply  a  great  machine 
for  distributing  the  burden  of  the  fire  loss  of  the  individual 
citizen  among  his  neighbors  throughout  the  entire  country,  so 
that  the  burden  of  helping  one  who  is  unfortunate  will  be 
lightly  felt  by  alL  It  is  the  truest  and  most  sensible  method 
of  carrying  out  the  scriptural  injunction  as  to  the  distribution 
of  burthens,  and  it  is  amenable  to  the  laws  of  trade  which 
automatically  regulate  the  profits  of  all  commercial  enter- 
prises so  that  no  'one  class  of  citizens  can  long  retain  any 
undue  advantage  of  their  neighbors  or  any  improper  share 
of  the  community  wealtho 

F.  C.  MoORE, 
H.  H.  Hall, 
E.  C.  Irvin, 
D.  W.  C.  Skilton, 
James  Nichols, 

Committee, 


14  DAY  USE 

RETURN  TO  DESK  FROM  WHICH  BORROWED 

LOAN  DEPT. 

This  book  is  due  on  the  last  date  stamp>ed  below,  or 

on  the  date  to  which  renewed. 

Renewed  books  are  subject  to  immediate  recall. 


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General  Library 

University  of  California 

Berkeley 


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